ONGC, 12th February, 2013
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7/29/2019 ONGC, 12th February, 2013
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Please refer to important disclosures at the end of this report 1
EBITDA 11,342 11,051 2.6 10,369 9.4
EBITDA margin 54.0 61.0 (693)bp 52.4 164bp
Source: Company, Angel Research
For 3QFY2013, Oil and Natural Gas Corporation (ONGC)s top-line and
profitability were higher than our estimates.
The companys top-line
increased by 15.8% yoy to `20,987cr (above our expectation of `19,294cr). The
net realization for crude oil increased by 6.7% yoy to US$47.9/bbl and gas
realizations increased 10.5% yoy to 8.4/scm. Crude oil sales volumes grew 7.0%
yoy to 6mn tonne.
EBITDA margin contracted by
693bp yoy to 54.0% and EBITDA increased by 2.6% yoy to `11,342cr, mainly
due to higher subsidy burden.
The companys other income grew by 33.7% yoy
to `1,281cr, which resulted in the adjusted net profit growing by 54.6% yoy to`5,563cr (above our expectation of `4,843cr)
We remain positive on ONGC from a long-term
perspective due to potential reserve accretion from its large exploration and
production (E&P) acreage. Further, we expect the government to progressively
raise diesel prices during CY2013 and CY2014, which is expected to result in
lower subsidy burden for ONGC. Also, a concrete subsidy-sharing formula by
the government could make ONGCs cash flows more predictable. The stock is
currently trading at an inexpensive valuation of 10.8x FY2013E and 9.0x
FY2014E PE. Hence,
Key financials (Consolidated)
% chg 15.6 24.5 (1.6) 9.7
% chg 15.7 25.3 (12.9) 19.9
OPM (%) 41.2 32.9 32.8 34.7
P/E (x) 11.7 9.4 10.8 9.0
P/BV (x) 2.3 1.9 1.7 1.5
RoE (%) 20.7 24.9 17.0 18.2RoCE (%) 18.8 20.2 16.9 19.0
EV/Sales (x) 2.1 1.7 1.5 1.3
EV/EBITDA (x) 5.0 5.1 5.3 4.1
Source: Company, Angel Research
CMP `308
Target Price `357
Investment Period 12 Months
Stock Info
Sector
Net debt (` cr) (12,666)
Bloomberg Code
Shareholding Pattern (%)
Promoters 69.2
MF / Banks / Indian Fls 11.4
FII / NRIs / OCBs 5.6Indian Public / Others 13.7
Abs. (%) 3m 1yr 3yr
Sensex 4.2 9.6 20.5
ONGC 20.0 9.6 12.1
Oil & Gas
Avg. Daily Volume
Market Cap (` cr)
Beta
52 Week High / Low
Face Value (`)
BSE Sensex
Nifty
Reuters Code
5
19,461
5,898
ONGC.BO
ONGC@IN
263,851
0.8
354/240
288,002
Tel: 022 - 3935 7800 Ext: 6821
Tel: 022- 39357600 Ext: 6841
Performance Highlights
3QFY2013 Result Update | Oil & Gas
February 11, 2013
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ONGC | 3QFY2013 Result Update
February 11, 2013 2
Exhibit 1:3QFY2013 performance (Standalone)
Total operating expenditure 9,645 7,073 36.4 9,419 2.4 28,019 22,062 27.0
EBITDA Margin (%) 54.0 61.0 52.4 54.0 61.3 Other Income 1,281 958 33.7 1,901 (32.6) 4,221 2,931 44.0
Depreciation 4,411 4,532 (2.7) 3,727 18.3 11,337 11,991 (5.5)
Interest 1 2 (34.9) 3 (60.5) 34 12 183.3
Exceptional items - 3,142 - - 3,142
PBT Margin (%) 39.1 58.6 43.2 42.2 50.8
Total Tax 2,648 3,876 (31.7) 2,643 0.2 8,154 9,467 (13.9)
% of PBT 32.2 36.5 30.9 31.7 32.7
PAT Margin (%) 26.5 19.9 29.8 28.8 28.7
Source: Company, Angel Research
Exhibit 2:Crude oil realization trend
Gross realization 116 112 122 109 110 110
Subsidy burden 67 77 63 63 63 62
Net realization 45 44 46 47 47 48
Source: Company, Angel Research
Exhibit 3:Sales volumes (crude oil)
Crude oil- ONGC 5.00 4.89 5.78 4.78 4.71 4.91
Crude oil-JVs 0.81 0.74 0.81 1.11 1.53 1.12
TotalCrude oil 5.81 5.64 6.59 5.90 5.86 6.04
Source: Company, Angel Research
Exhibit 4:Sales volumes (Gas)
Gas- ONGC 4.54 4.53 6.03 4.68 4.65 4.63
Gas- JVs 0.51 0.49 0.53 0.44 0.40 0.38
Total Gas 5.05 5.02 6.56 5.12 5.06 5.02
Source: Company, Angel Research
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ONGC | 3QFY2013 Result Update
February 11, 2013 3
Exhibit 5:3QFY2013 Actual vs Estimates
Total operating income 20,987 19,294 8.8
EBITDA 11,342 9,936 14.1
EBITDA Margin (%) 54.0 51.5 254bp
PAT 5,563 4,843 14.9Source: Company, Angel Research
ONGC reported better-than-
expected 3QFY2013 results. The companys top-line increased by 15.8% yoy to
`20,987cr (above our expectation of `19,294cr). ONGCs crude oil net realization
increased by 6.7% yoy to US$47.9/bbl and gas realizations increased 10.5% yoy to
8.4/scm due to INR depreciation against the USD. Crude oil sales volume grew
7.0% yoy to 6mn tonne while gas sales volumes remained flat yoy at 5bcm. The
company shared a subsidy burden of `12,433cr in 3QFY2013.
Exhibit 6:Operating revenue growth trend
Source: Company, Angel Research
EBITDA margin contracted by 693bp
yoy to 54.0% and EBITDA increased by 2.6% yoy to `11,342cr mainly due to higher
subsidy burden.
18.5
24.3
(2.5)
16.8
24.0
(12.5)
15.8
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
25.0
30.0
-
3,000
6,000
9,000
12,000
15,000
18,000
21,000
24,000
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13
(%)
(`cr)
Operat ing revenues Operat ing revenues growth (RHS)
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ONGC | 3QFY2013 Result Update
February 11, 2013 4
Exhibit 7:Operating performance trend
Source: Company, Angel Research
The companys other income grew by 33.7% yoy to`1,281cr which resulted in adjusted net profit growing by 54.6% yoy to `5,563cr
(above our expectation of `4,843cr)
Exhibit 8:PAT growth trend
Source: Company, Angel Research
57.8
64.0
61.061.5
55.4
52.4
54.0
45.0
48.0
51.0
54.0
57.0
60.0
63.0
66.0
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13
(%)
(`cr)
Operating Profit Operating Margins (RHS)
11.8
60.4
(49.2)
102.3
48.4
(31.8)
54.6
(60.0)
(40.0)
(20.0)
-
20.0
40.0
60.0
80.0
100.0
120.0
-
1,000
2,000
3,000
4,0005,000
6,000
7,000
8,000
9,000
10,000
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13
(%
)
(`cr)
Adj. PAT Adj. PAT growth (RHS)
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ONGC | 3QFY2013 Result Update
February 11, 2013 5
Investment argument
Gas volumes expected to boost valuation: ONGC aims to increase gas
production from North Tapti, B193 and 28 cluster, B22 cluster WO series cluster,
B46 cluster, cluster 7 and B series. The company aims to increase its production to
27bcm in FY2013 from 23bcm in FY2011. As far as oil is concerned, ONGCs
existing oil fields have matured. Thus, production from these fields is declining.
Nevertheless, the Management expects incremental oil production from marginal
fields (including D1 extension), which will help arrest the decline in crude production.
OVLs volume story intact: ONGC Videsh Ltd (OVL)s production has increased
steadily from 8.0mtoe in FY2007 to 9.5mtoe in FY2011. Going forward, we expect
a robust volume growth from OVL, which aims to increase its production at a CAGR
of 7.0% during FY2012-14 with incremental productions from Myanmar, Sakhalin-1
and Venezuela coming on stream. Moreover, any increase in crude oil or gas price
would improve OVLs margins, as it does not share under-recoveries.
The government has recently indicated astaggered diesel price hike during CY2013-14 in order to lower under-recoveries.
We expect Oil Marketing Companies to undertake small price hikes
(`0.30-0.40/litre) progressively over the coming two years which is expected to lower
under-recoveries significantly by FY2015. The lower subsidy burden could result in
earnings growth of 20-30% for ONGC during FY2015. Diesel price hikes could
re-rate the stock gradually in our view.
Outlook and valuation
We remain positive on ONGC from a long-term perspective due to potential reserve
accretion from its large exploration and production (E&P) acreage. Further, we
expect government to progressively raise diesel prices during CY2013 and CY2014,
which is expected to result in lower subsidy burden on ONGC. Also, a concrete
subsidy-sharing formula by the government could make ONGCs cash flows more
predictable. The stock is currently trading at inexpensive valuations of 10.8x FY2013
and 9.0x FY2014E PE. Hence,
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ONGC | 3QFY2013 Result Update
February 11, 2013 6
Exhibit 9:SOTP valuation
ONGC Standalone(DCF) 244
OVL(Oil- EV/boe $14x Gas Ev/Boe $5x) 52
Investment Value(80% mkt Value) 17
Net debt (44)
Source: Company, Angel Research
Exhibit 10:Key assumptions (Standalone)
Sale of crude oil (MMT) 23.0 23.0
Net realisations (US$/bbl) 45.7 52.4
Source: Company, Angel Research
Exhibit 11:Angel EPS forecast vs consensus (Consolidated)
28.6 29.87 (4.1)
34.4 34.45 (0.3)
Source: Company, Angel Research
Exhibit 12: Recommendation summary
RIL 868 - Neutral 2,81,167 - 12.8 12.1 1.4 1.2 8.2 7.4 12.4 11.8 8.6 8.9
GAIL 335 - Neutral 42,557 - 9.9 9.5 1.7 1.5 5.3 4.3 18.5 16.8 19.8 18.1
CAIRN 316 383 Buy 60,741 21 5.2 5.7 1.0 0.9 3.4 3.1 21.9 17.0 21.3 16.6
Source: Angel Research
Exhibit 13: One-year forward P/E
Source: Company, Angel Research
50
100
150
200
250
300
350
400
450
Jul-06
Oct-06
Jan-0
7
Apr-07
Jul-07
Oct-07
Jan-0
8
Apr-08
Jul-08
Oct-08
Jan-0
9
Apr-09
Jul-09
Oct-09
Jan-1
0
Apr-10
Jul-10
Oct-10
Jan-1
1
Apr-11
Jul-11
Oct-11
Jan-1
2
Apr-12
Jul-12
Oct-12
Jan-1
3
Shareprice(
`)
4.0 X 6.0 X 8.0 X 10.0 X 12.0 X
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ONGC | 3QFY2013 Result Update
February 11, 2013 7
Company background
ONGC is the third largest oil and gas exploration and production company in the
world and ranks 23rd among leading global energy majors. Its primary business
includes exploration, development and production of crude oil, natural gas, LPG
and other value-added petroleum products.ONGC has 2P reserves of 1,025mtoe
of hydrocarbon reserves, indicating a reserve life of 17 years. The company has also
set up a subsidiary, OVL, for overseas oil exploration and production. OVL has
2P reserves of 199mtoe indicating a reserve life of 21 years.
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ONGC | 3QFY2013 Result Update
February 11, 2013 8
Profit & Loss Statement (Consolidated)
% chg 8.1 (2.7) 15.6 24.5 (1.6) 9.7
Total Expenditure 61,364 56,805 69,174 99,123 96,813 103,275
Net Raw Materials 28,975 25,339 31,251 46,323 45,244 48,263Other Mfg costs 17,678 16,321 19,685 33,648 32,864 35,057
Personnel 1,162 1,407 1,716 1,696 1,656 1,767
Other 13,549 13,738 16,523 17,457 17,050 18,188
% chg 4.8 4.0 7.8 (0.5) (1.9) 15.9
(% of Net Sales) 41.3 44.2 41.2 32.9 32.8 34.7
Depreciation& Amortization 15,430 18,719 20,628 12,912 13,923 14,460
% chg 1.6 (5.6) 6.0 26.8 (5.4) 20.9
(% of Net Sales) 26.6 25.8 23.6 24.1 23.1 25.5
Interest & other Charges 1,774 1,102 437 435 680 682
Other Income 5,072 5,273 6,946 4,826 4,586 5,044
(% of PBT) 16.3 17.3 20.2 12.2 12.3 11.3
% chg 0.3 (2.2) 12.9 15.6 (6.1) 20.0
Adj. related to prior period (11) (40) - - - -
Extraordinary Expense/(Inc.) (66) - - (3,141) - -
Tax 11,009 10,714 11,491 14,375 12,513 15,009
(% of PBT) 35.3 35.2 33.5 33.6 33.6 33.6
Add: Share from asso. 9.9 7.8 3.0 (1.1) 9.8 10.8
Less: Minority interest (MI) 375 332 372 284 247 297
% chg (0.1) (2.3) 15.7 39.3 (21.7) 19.9
(% of Net Sales) 19.0 19.1 19.1 21.4 17.0 18.6
% chg (0.4) (2.0) 15.7 25.3 (12.9) 19.9
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ONGC | 3QFY2013 Result Update
February 11, 2013 9
Balance Sheet (Consolidated)
Equity Share Capital 2,139 2,139 4,278 4,278 4,278 4,278
Preference Capital - - - - - -
Reserves& Surplus 90,085 99,268 111,049 132,161 147,258 166,389
Minority Interest 1,411 1,643 1,989 2,208 2,446 2,732
Deferred Tax Liability 9,223 10,291 11,176 12,204 12,204 12,204
Other Long Term Liabilities - - 973 1,080 1,080 1,080
Long Term Provisions - - 23,185 24,149 24,149 24,149
Gross Block 169,748 193,300 166,132 180,674 205,674 230,674
Less: Acc. Depreciation 105,955 117,757 82,077 89,129 103,052 117,512
Capital Work-in-Progress 24,758 25,616 34,760 49,698 29,283 29,284
Goodwill 11,404 9,539 8,993 7,798 7,798 7,798
Defered tax assets - - 24 19 19 19
Long term loans and adv. - - 8,688 8,103 8,103 8,103
Site Restoration find deposit - - 8,126 9,475 9,475 9,475
Other non-current assets - - 1,130 2,920 2,920 2,920
Cash 22,596 22,384 20,816 27,890 48,884 58,469
Loans & Advances 13,264 12,057 4,012 4,931 4,931 4,931
Other 14,855 16,125 19,365 26,370 26,897 27,435
Mis. Exp. not written off 651 841 - - - -
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ONGC | 3QFY2013 Result Update
February 11, 2013 10
Cash Flow Statement (Consolidated)
Profit before tax 31,093 30,441 34,313 42,804 37,258 44,693
Depreciation 8,779 8,863 11,353 12,919 13,923 14,460
(Incr)/ Decr in Misc Exp 1 (264) - - - -
Change in Working Capital 2,355 (473) (14,168) (7,050) 683 709Less: Other income - - (2,593) (7,072) (4,586) (5,044)
Others (3,238) (2,300) 30,696 17,034 - -
Direct taxes paid (10,244) (7,748) (10,517) (11,881) (12,513) (15,009)
(Inc.)/ Dec. in Fixed Assets (21,639) (21,253) (19,704) (39,176) (4,585) (25,001)
(Inc.)/ Dec. in Investments 902 (2,249) (4,347) 179 - -
(Inc.)/ Dec. in loans and adv. (1,951) 532 (798) (15) - -
Other income - - - - 4,586 5,044
Others 3,365 1,868 (7,360) 10 - -
Issue of Equity - 287 - - - -
Inc./(Dec.) in loans 4,968 (304) 40 3,191 (4,361) -
Dividend Paid (Incl. Tax) (8,103) (8,078) (11,789) (8,521) (9,411) (10,267)
Others (8,748) 109 80 5,432 - -
Inc./(Dec.) in Cash (2,460) (592) 5,206 7,854 21,013 9,584
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ONGC | 3QFY2013 Result Update
February 11, 2013 11
Key Ratios
P/E (on FDEPS) 13.3 13.6 11.7 9.4 10.8 9.0
P/CEPS 7.5 6.9 6.1 6.4 6.9 6.0
P/BV 2.9 2.6 2.3 1.9 1.7 1.5Dividend yield (%) 2.6 2.7 2.8 2.9 3.2 3.6
EV/Sales 2.3 2.4 2.1 1.7 1.5 1.3
EV/EBITDA 5.4 5.4 5.0 5.1 5.3 4.1
EV/Total Assets 1.9 1.8 1.5 1.3 1.2 1.0
EPS (Basic) 23.1 22.7 26.2 32.9 28.6 34.4
EPS (fully diluted) 23.1 22.7 26.2 32.9 28.6 34.4
Cash EPS 41.2 44.6 50.4 48.0 44.9 51.3
DPS 8.0 8.3 8.5 9.0 10.0 11.0
Book Value 108 119 135 159 177 199
EBIT margin 26.6 25.8 23.6 24.1 23.1 25.5
Tax retention ratio 64.7 64.8 66.5 66.4 66.4 66.4
Asset turnover (x) 1.2 0.9 0.9 1.0 0.9 1.0
ROIC (Post-tax) 19.9 15.5 14.6 15.5 14.0 16.9
Operating ROE 19.9 15.5 14.6 15.5 14.0 16.9
ROCE (Pre-tax) 24.3 19.9 18.8 20.2 16.9 19.0
Angel ROIC (Pre-tax) 39.3 31.2 28.9 32.5 28.0 31.3
ROE 23.3 20.0 20.7 24.9 17.0 18.2
Asset Turnover (Gross Block) 0.7 0.6 0.7 0.8 0.7 0.7
Inventory / Sales (days) 24 27 28 29 29 29
Receivables (days) 25 26 27 27 28 28
Payables (days) 109 137 134 131 132 132
WC cycle (ex-cash) (days) (2) (4) (20) (25) (24) (23)
Net debt to equity (0.2) (0.2) (0.2) (0.1) (0.3) (0.3)
Net debt to EBITDA (0.5) (0.5) (0.4) (0.3) (0.9) (0.9)
Interest Coverage (EBIT/Int.) 15.7 23.8 63.6 81.1 49.0 59.1
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ONGC | 3QFY2013 Result Update
February 11 2013 12
Research Team Tel: 022 3935 7800 E-mail: [email protected] Website: www.angelbroking.com
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
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risks of such an investment.
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investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
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Disclosure of Interest Statement ONGC
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)